FISCAL POLICY & BUDGETBy Akash Saha

FISCAL POLICY

FISCAL POLICY

Fiscal Policy is that part of Government Policy which is concerned with raising Revenue through taxation and other means and deciding on the level and pattern of expenditure with a view to correct the situations of excess demand or deficient demand in the economy.

INSTRUMENTS OF FISCAL POLICY

Instruments related to Government expenditure.

Fiscal instruments related to Government revenue.

MEASURES1. INCASE OF DEFICIENT DEMAND

Decrease in taxes.Increase in public expenditure.Increase in deficit financing.Reduce public borrowing.

2. INCASE OF EXCESS DEMAND

Increase taxes.Decrease Government expenditure.Reduce deficit financing.Increase public borrowing.

ROLE IN DEVELOPMENT OF ECONOMY

Capital Formation.Increase the rate of investment.Encourage socially optimal investment.Increase employment opportunity.Economic stability in face of international instability.Counteract inflation.Flow of investment to socially desirable channels.Check imbalance in various sectors.Reduce inequality of income and wealth.

BUDGET

BUDGETIt is the annual statement of the estimated receipt and expenditure of the Government over the fiscal year.

There are two types of Budget :

Revenue Budget.Capital Budget.

Revenue Budget consists of revenue receipt and the expenditure met from such revenues.

Capital Budget consists of capital receipt and capital expenditure.

REVENUE RECEIPTS

CAPITAL RECEIPTSLoans raised by the Government from the public.

Borrowings by the Government from the RBI and other parties through sale of Treasury Bills.

Loans received from foreign Government and bodies.

Recoveries of loans granted to state and union territory Government and other parties.

Small savings and deposits in Public Provident Funds.

CAPITAL EXPENDITURE

Expenditure on acquisition of assets and loans and advances.

BUDGET SURPLUS

The amount by which a Government income exceeds its spending.

Effective tool to achieve the objective of price stability.

BUDGET DEFICITIt occurs when an entity spends more money than it takes in.

It consists of two elements :

1.Cyclical deficit.2.Structural deficit.

BALANCED BUDGETA balanced budget in the public sector is achieved when the Government has enough fiscal discipline to be able to equate the revenues with expenditure over the business cycles. In other words, a Government’s budget is balanced if its income is equal to its expenditure. This allows for a deficit in periods of low economic prospects that however needs to be matched by a surplus in periods of high economic activity.